UGANDA, Kampala | Real Muloodi News | As a landlord, you understand that a reasonable rental rate is both competitive and profitable. You may get tempted to set a premium rate for your property. However, this may lead to long-term vacancy, while setting the rent too low will affect your ability to make a profit.
Diana Babu, a realtor, explains, “I feel comfortable showing a property that is worth it. While I want the property owner to profit from their investment, I also want them to be realistic.” She advises landlords to consult professionals. A property professional will use research and experience to determine the optimum rent range.
Here are some tips to help you set the correct rental rate:
- Look at Comparable Properties
Diana explains: “What would be optimal is comparing your property with one that has similarities to your own. For example, if a single family property in the neighbourhood, that was completed at about the same time and has similar quality of finishing, charges USh2m, then it is safe to charge the same amount. But if you think yours is superior in quality, you are justified to charge slightly more than that,” she advises.“
When comparing properties, it is not enough to merely consider the number of bedrooms and bathrooms. You also need to take into consideration underlying factors, such as property size, age, and finishing quality. Generally, tenants prefer newer properties. As such, older properties typically yield less because they are less desirable.
Also look at what amenities your property offers, such as kitchen appliances or security. If comparable properties lack these amenities, you may justify charging higher rent. Other amenities that may influence rental rates are rent parking availability, the view from the property, single-story versus multi-story, and quality of flooring and fixtures.
- Verify Your Ideal Rate Covers Expenses
Your rental income must generate profit, pay for expenses, and generate cash flow. To ensure that this is the case, calculate your potential costs, including taxes, interest on loan payments, insurance, maintenance and other operating expenses, vacancy costs, and monthly profit to the owner.
Then, add a percentage to it. An excellent return on investment is a yield of between 20 to 40 per cent to your estimated marginal cost.
- Start a Little Higher
Robert Bwayo, a real estate agent, advises landlords to start with a slightly higher rental rate, allowing you room to bring it down during negotiations with potential tenants.
Additionally, a higher rent might get you better quality tenants, since most people believe higher rents mean better living standards.
- Look at The Market
Keep up to date with the real estate market trends because setting a rental rate is not a one-time thing.
Typically, when demand is high for your property type, you can set the rent higher. When there’s less demand, you might have to lower the rent to keep your tenants.
Robert says, “smart investors have no problem decreasing rent in response to market trends. Refusing to decrease rent may cause extended vacancy, which is a direct and expensive hit to the return on investment.”
“Before you adjust that rent, find out whether it is justified. Has the area appreciated in value or not? Are you willing to upgrade the property to the desired quality worth that increment? If nothing has changed, why do you feel the need to increase the rent?” he asks.
Determining the correct rental rate is an integral part of running a successful rental business. Make sure you do your research, and stay up to date with the market.
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